EY US chief signaled widespread concern over split

EY’s US chief told partners she was concerned about the “health” of the firm’s accounting business if it were to split in two, highlighting the depth of the divisions that have thrown the project into turmoil.

During a webcast last week to US partners, Julie Boland also said the future strategies of the accounting and consulting firms remained unclear and it was unclear how the consultancy would meet its profit targets, according to a record verified by the Financial Times.

The Big Four firm announced in September it was spinning off its consulting business, but Boland surprised global leaders when she said on her webcast that the entire deal was on hold.

A faction in the US business has fought to retain more tax professionals if the advisory arm is spun off, but the transcript of Boland’s comments shows US leaders’ concerns run deeper.

Objections following extensive planning for the split – codenamed “Project Everest” – have thrown EY into an uproar, with allegations between national member firms and within the US, and no clear roadmap for next steps.

The decision to halt work came after the US Executive Committee reviewed information from advisers and EY executives around the world, Boland told partners.

“We agreed that we all remain committed that a separation into two strong organizations is strategically the right direction for us to be successful in the long term,” she said, adding that while many issues have been worked out, the However, those remaining “were hit the hardest to solve and . . . are the most critical”.

Boland identified four major hurdles to the deal.

This included not only which partners are assigned to which deals, but also the “alignment of the strategies of both organizations”, “the health of the global network” for the audit-dominated side of the business and “our ability as a firm to execute and deliver [the advisory business] ebitda required for each transaction”.

“The fact that all of this is interconnected adds additional complexity to this,” she said.

Boland, who would lead the global auditing business after the split, is expected to come forward with a string of demands from the US firm during Crunch talks in New York this week with executives from EY’s UK, EMEIA and Asia-Pacific businesses give, said the people with knowledge of the matter.

US leaders met over the weekend to flesh out their position ahead of international negotiations, EY officials said. Executives elsewhere in the firm have been frustrated by the impasse, which some say was created by a dissenting faction in the US that has insisted on reopening issues that have mostly been resolved over the last year.

Two non-US EY partners said the rest of the world had made significant concessions to the US arm, including overfunding pension liabilities and allowing it to employ more tax professionals than anywhere else in the world, but pointed out that further flexibility is needed will be shown.

Carmine Di Sibio, EY’s global chief executive, last year won approval from country leaders to split up the $45 billion revenue firm to exempt advisors from conflict of interest rules restricting them from selling services to accounting clients.

Veterans of the US accounting practice, in particular, have questioned the wisdom of relegating most of the tax advisory business to the advisory division rather than keeping it within the accounting firm.

Meanwhile, a slowdown in parts of the consulting sector has raised questions about the potential profitability and valuation of a standalone consulting firm.

Before the deal was paused, Andy Baldwin, EY’s global managing partner for customer service, told the Financial Times that the company was “confident” that the advisory business could deliver the profits “that will allow us to pay off both the debt and… also to increase the equity we have need for the deal”. EY UK boss Hywel Ball previously said the spin-off would allow investments to improve audit quality.

https://www.ft.com/content/a8b3f284-944b-4302-901a-8ddca7ba0243 EY US chief signaled widespread concern over split

Brian Ashcraft

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